How to Balance Multiple Savings Goals to Meet your Needs
There are many ways to evaluate how to spend your income earned: a portion on fixed expenses, another percentage on discretionary expenses, and the balance to future savings. But what happens when you have more than one savings goal? How should the total amount saved be allocated among goals? This is an area to consider and re-evaluate over time with the changes of circumstances. Two major savings goals discussed here are your personal retirement and educational savings for children.
With pensions being few and far between and the uncertainties concerning social security, it is almost certain that most of the retirement funding will be self-funded. Many people will find themselves in the workplace for 40 years, so finding the ability to contribute early will allow savings to accumulate more growth before the funds are needed. It is always important to ensure that you don’t leave any employer money on the table. If there is a match that requires the employee to also contribute, make sure you are maximizing the employer provided benefit.
Education savings adds another outflow of cash to a likely already challenging financial time frame for adults. However, if you can build a small amount monthly into your budget from the start, the additional funds available when the time for college comes will be a relief to you and your child. For example, if you were able to invest $100 per month in a college plan for your child starting at birth through their 18th birthday and the funds were invested to average an 8% return, your child should have over $48,000 accumulated at the time they start college. Your total outlays to arrive at this amount would have been $21,600 – which illustrates the true benefit of beginning the savings process early.
Financial Goal Evaluation
It is possible that when you evaluate your end financial goal for both of these items, you may find that the ability to reach them may be difficult or impossible. There are things to consider in this case:
- You cannot borrow for retirement – fund this goal before education goal
- Reevaluate your retirement goal and adjust your:
- desired retirement age
- standard of living in retirement
- willingness to work part time in retirement
- Change the way you plan to fund college:
- Your child can get a job
- Apply for scholarships
- Consider different types of college institutions
If you are unsure about how to allocate your funds between savings goals or need your investment plan evaluated, our team can assist in guiding your first step. Call us at 513-241-8313 or click here to contact us. We look forward to hearing from you.